Bernie Sanders, the septuagenarian presidential candidate, has captivated millions of mainly young, middle and working class Americans with his vision for economic equality. It is indisputable that economic inequality in America has risen dramatically over the past few decades. Today, the top 1 per cent of American households control over 40 per cent of the country’s wealth, a doubling of their share since the mid-1970s.
Such a gaping disparity between the wealthy and the middle and working classes does not help social stability, and it harms economic growth. The wealthy generally save much more money than the poor do, so a millionaire puts less money back into the economy than a working class individual does.
Unfortunately, Sanders’ economic proposals are too radical. An economic analysis of his plans show that they are quite unfeasible, and likely to blow a massive hole in the federal budget. Ultimately, such an outcome would harm the very people he seeks to protect.
The big three plans
Sanders’ plan has three main components: greater infrastructure spending, free public college, and expanded social security – in particular, government-funded health insurance for all Americans. Of these three, boosting infrastructure spending is probably the most reasonable. There is a wide agreement that America’s crumbling infrastructure is in need of an overhaul.
Even so, a group of prominent left-leaning economists – those who generally support government spending to support the economy – recently noted that Sanders’ plan to spend US$1 trillion between 2017 and 2021 would have a negligible long term positive impact on the economy.
Free public college is a great idea, but it is here that the plan begins to face harsh realities. By Sanders’ own estimate, the initiative would cost the federal government a staggering US$75 billion annually. But this figure ignores that offering free college would inspire more people to enrol. Greater enrolment numbers would further raise the cost of providing free tuition. Furthermore, college administrators would face skewed incentives. Administrators would have no qualms about spending exorbitant sums of money to attract more enrollees, knowing that the government would cover tuition.
Under the current system, irresponsible spending is discouraged because the corresponding tuition hikes discourage enrolment. If Sanders’ plan were to be implemented, this disincentive would cease to exist, and the federal government’s education bill would continue to rise.
The most ambitious initiative on Sanders’ platform is his plan to offer free government health care to all Americans. This would require the government to raise an additional US$14 trillion in revenue over the next ten years. Sanders proposes a sharp increase in income taxes and capital gains (profits from investments) taxes to cover the shortfall. It is doubtful that the sufficient revenue would be raised, considering that higher taxes would stifle investment and drag on the economy – and reduce incomes, too.
Sanders’ proposal also neglects to analyse the incentives at play from the costs side. By removing all out-of-pocket medical costs, consumers would no longer have a reason to skip unnecessary medical services. So even if Sanders’ tax plan could raise the required US$14 trillion, health care spending would rise to significantly higher levels.
Moderate plans will unite both sides
Policymaking is undoubtedly difficult, and it is not entirely clear how best to narrow America’s frightening wealth and income gaps while maintaining a responsible budget and satisfactory levels of growth. What is apparent, however, is that it will take measures more moderate than Sanders’ to do it.
In the unlikely event that Sanders becomes the next American president, the economic gains he and his followers envision may turn out to be illusory.
Even if he were elected, political analysts are convinced his proposals would stand no chance of being passed by a heavily divided Congress that is likely to remain controlled by the Republican party. Socialistic economic policy has its appeal, but there is a reason it has long since gone out of fashion: it does not work.